In the face of the global financial crisis, Kevin Rudd introduced government guarantees on deposits. Provide...

In the face of the global financial crisis, Kevin Rudd introduced government guarantees on deposits.

Provide a paragraph on the general impact of this policy to the efficient frontier based on the Australian environment.

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Expert Solution

When Kevin Rudd introduced government guarantees on the deposits, it will mean that there will be a protection for various deposits which are made into the commercial banking system because he has introduced government guarantees on the deposits and it will mean that there will be a lesser probability of the financial collapse and Bank run because people will be feeling that their deposits are safe even at the time of sharp economic downturn because as these times depositors are highly sceptical about their deposits in the banking system and they are willing to withdraw the deposits and there may be a probability of bank run so introduction of government guarantee on deposits will be eliminating these possibilities of financial contagion and financial collapse.

Impact of this policy on efficient Frontier in the Australian government could be related to the economy becoming more efficient and there will be a more switching towards risk free securities because investors would be trying to protect their investment at any cost and they will be trying to invest in to risk-free securities because it has been provided with additional guarantee by the government.

jeff jeffy answered 1 year ago

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